Not only Republicans but also some liberal Democrat interest groups and bloggers are angry with the Senate Democrats, but for different reasons of course. For example, see NY Rep. Louise Slaughter’s December 23rd article on the CNN web site “The Senate Bill Is Not Reform” (click here). These liberals are upset at two issues in particular: the failure to include a public option in the Senate bill (forcing people to buy insurance company products) and the fact that it does include a tax on “high cost” health plans provided by employers.

The House bill still has a public option in it, available only to those having to get coverage from an exchange (non-employed individuals under age 65 and those working for small employers). But as noted, the fear is that it will be “compromised” out of the final bill, as some House Democratic leaders are admitting.

We’ve discussed the public option and its potential advantages ad nauseam. But to throw in the towel in hopes of getting a future bill with the public option or getting to a single payer system in the foreseeable future in our culture is not very realistic. Those liberals who want to start over because the final bill might lack a public option or has other annoying provisions had better read Nate Silver’s “20 Questions for Bill Killers” on his well-respected politics web site, FiveThirtyEight: (click here)

Here are two of his questions specific to the public option:

Even Yale professor Jacob Hacker, who first promoted the idea of a public option, says that we need to pass a bill, even if the public option is dropped. In his December 20th article in The New Republic (click here) he says the final bill will still contain three critical reforms: the exchange(s) for individuals and small employers to compare and purchase coverage, subsidies to make coverage more affordable, and insurance reforms. We would add a fourth: health delivery system reforms, which perhaps need to be made stronger and implemented more quickly than the current provisions allow for, but which still finally put us on track to save long term dollars.

If a public option is omitted from the final bill, Hacker urges that it at least include a national health exchange, rather than the state-based ones provided for in the Senate bill, since a national exchange will give government more influence in regulating the insurance companies, and requiring financial transparency and reports.

Another and broader take on the need to pass a final bill with all its faults is found in Jonathan Chait’s December 24th article in the New Republic, “And the Rest Is Just Noise” (click here). Chait concludes:

Regarding the tax on “high cost” or “Cadillac” health plans, the debate rages on. The CNN News web site has a good article summarizing the different tax approaches that the House and Senate bills take: (click here). The Senate bill would impose a 40% excise tax on insurance companies or self-insured employers (which most large employers are) to the extent a plan’s value exceeds $8,500 annually for single coverage and $23,000 for family coverage. This value includes dental and vision coverage and reimbursements from flexible spending accounts or health reimbursement accounts, and employer contributions to health savings accounts (yes, these are three different types of accounts with varying tax rules). For example, a plan with a total value of $10,000 for single coverage would incur a tax of 40% x (10,000 - 8,300), or $680. If the insurance company had to pay it, they likely would spread it into the cost of all plans. If a large self-insured employer had to pay it, it would likely drop the plan or increase the cost-sharing provisions (co-pays, deductible, etc.) to lower the value.

The Senate bill does have provisions to increase the dollar threshold annually, but only at the rate of general inflation plus 1%. The bill also makes exceptions for high risk industries, higher costs regions, and employees over age 55. But as we all know, specific thresholds and exception rules tend to have sharp edges. Some survive and some are cut.

It is often reported that most economists don’t like the income tax exclusion given to employer-paid health coverage that is not given to others having to get coverage themselves. It’s inequitable, encourages providing rich benefits in lieu of pay, hides the real cost of these benefits, and locks them to employers rather than to individuals. But rather than start to take away this $250 billion annual tax loss, Senate Democrats tried the indirect trick of taxing the insurance companies or self-insured employers for “excessive” benefits.

Nevertheless, this approach is supported by some, like Washington Post columnist Ezra Klein and MIT health economist Jonathan Gruber, since it seems to partly redress the above problems and provides some revenue to help fund the health bill.

Gruber wrote a guest editorial in the December 28th Washington Post in support of this tax (click here). The tax is an important revenue source for helping to fund the overall bill, supposedly by bringing in about $150 billion over the next 10 years through either the excise tax itself or the higher wages that employers supposedly will offer in place of reduced health care benefits.

But New York Times columnist Bob Herbert said that’s hogwash, according to his December 29th column (click here). Employers may reduce the health benefits (or direct their insurance carriers to do so) in order to avoid the excise tax. But what’s the likelihood they will convert that to higher salaries, especially in an economy projected to have employees begging for work? Herbert cites a recent survey by the human resources consulting firm Mercer, in which only 16% of the surveyed employers said they would convert the savings from reduced health care costs into higher pay.

Health care reporter Maggie Mahar backs up Herbert in her Dec. 31st Heath Beat blog (click here). She makes a further argument that we will not save costs by increasing out-of-pocket cost sharing provisions:

Many of the individuals cannot afford high deductibles, etc. to begin with (also the reason why high deductible plan are not a good solution).
Patients generally rely on their doctors for advise on what to do, especially when it comes to deciding on further tests or procedures.
Higher cost-sharing only tends to reduce utilization in terms of filling or refilling prescriptions or going to the doctor-all of which we want to encourage, especially since most of our costs are from chronic conditions that need to be monitored and controlled.

Mahar makes a strong case that the best hope for cost control is not taxing health benefits but letting “an Independent Medicare Advisory Commission (IMAC) that uses medical evidence …encourage effective care… If Medicare follows IMAC’s recommendations, Medicare has the clout to change the way it pays for care, saving money and lifting quality by rewarding value rather than volume. Other insurers might then follow Medicare’s example.” This was the hope for the public option. Mahar sees it as also possible through Medicare itself, if empowered to change provider behavior. And to get the needed revenue, she backs the House bill’s approach of increasing taxes on high incomes, since they have made out the best with previous tax cuts and income gains over the last decade.

Finally, law professor Timothy Jost and health policy professor Joseph White echo Mahar’s ideas and suggest that if Congress wants to limit rich benefits, then they should do that by specifically defining them, rather than using a blunt instrument, like the dollar threshold (click here).

Jacob Hacker, professor of political science at Yale and originator of the public option idea, has written a new paper detailing why…

• the public option is critical to cost savings, with its unique ability to hold prices down, provide competition where none now exists, enable drug price negotiation, and spur provider payment reform;
• using Medicare rates (or Medicare plus 5%, as in the draft House bill) is indeed fair to most providers, rarely causes cost-shifting to insurance plans, and is much more practical than the Senate HELP Committee’s provision that would require the Secretary of HHS to “negotiate” rates with all providers;
• the health care cooperative idea (being considered in the Senate Finance Committee as a more sellable “non-government-run” alternative) has hardly any chance of flourishing as a national presence within the next decade, let alone saving real money; and
• the health exchange should be offered more broadly to employers of all sizes in order to maximize savings-not necessarily to get more enrollees into the public option but simply because other plans will be more cost competitive facing a public option within the exchange.

The body of the report is 16 pages long, easy to read, and presents a very forceful and informative argument. Here’s the link: www.ourfuture.org/files/Hacker_Public_Plan_August_2009.pdf

As we noted in our March 27 “What’s New at Bucks Voices This Week” e-mail, whether or not to include a public option as part of the choices everyone would have for health plans is one of the most significant and hotly contested issues in Congress. To understand where a public option would fit in, first look at the general features of the health care reform legislation that’s most likely to pass in Congress, based on current thinking and the expressed comments of several key Senators, like Baucus and Kennedy:

• Keep Medicare, Medicaid, and the military TriCare and Veterans Administration programs
• Either expand eligibility for Medicaid benefits to higher income levels to cover more of those who otherwise could not afford to purchase coverage, or provide subsidies for them to purchase coverage that’s available to others.
• Perhaps reduce Medicare’s eligibility limit from 65 to age 55.
• Require employers to “pay or play,” that is, pay a percentage of payroll into a fund (perhaps further scaled to the size of the employer), or else provide health care coverage to employees and subsidize some percentage (e.g., 75%) of the costs.
• Require those not covered through employer programs or Medicare, Medicaid or military benefits, to make annual elections to purchase coverage through a national or (or perhaps regional or state) government-run “exchange.” Again, subsidies might be available for low/no income individuals, if not covered under Medicaid.

The public option would be available through the exchange, along with many insurance plan options, offered by Blue Cross, United, Aetna, CIGNA, and other national and regional carriers. The public option would be like Medicare in that it’s run by the federal government, with a uniform set of benefits around the country, a broad choice of health care providers, and low administrative overhead (due to no costs for marketing and no profit margin). But its benefit would be like other broad insurance plan benefits, and not the more limited and partitioned benefits that are now under Medicare (with its Parts A, B and D).

The originator of the public option idea, Professor Jacob Hacker of UC Berkeley, in April issued an updated paper on the proposal, further clarifying how it is essential to a market-based system if we want to save costs, and improve access and quality. Coincidentally, at about the same time, the Lewin Group (an actuarial analysis firm) issued a report on the potential impact of the public option on costs and on private insurance plan enrollments, which scared the willies out of conservatives and the insurance industry, further hardening their opposition.

The Lewin Group report reached the following conclusions, based on its actuarial model and certain critical assumptions which some have challenged:

• If the relatively low Medicare payment levels are used in the public plan, its costs (premiums) would be up to 30% less than premiums for comparable private insurance plan coverage. (Medicare pays hospitals about 30% less than private insurers pay, and it pays physicians about 20%, according to the Lewin Group)
• If the public plan is available to all individuals not covered by Medicare, Medicaid, or military plans, and it could pay providers at the Medicare payment levels, “we estimate that about 131.2 million people would enroll in the public plan. The number of people with private health insurance would decline by 119.1 million people.”

Thus the Lewin study seemed to confirm the worst fears of insurance companies—that their businesses would plummet. However some, like world-renown health care policy expert and Princeton University Professor Uwe Reinhardt, have questioned Lewin’s assumptions about using Medicare payment rates and people migrating from current plans to a new public plan. (See Reinhardt’s testimony before Congress on April 22) Note also that the Lewin Group has been owned by Ingenix, a subsidiary of United Health Group (one of the largest insurance companies in the U.S.) since 2007.

Why are we focusing so much on the public option? It’s because May and June are the months in which legislation is going to be finalized in the Senate. So if you are in favor of including a public option, this is the time to contact both our Senators and Representatives to press for including the public option. Republicans don’t want it, and insurance companies are lobbying others fiercely and now running crafty advertising campaigns about preserving your “right to choose” (their plans) in order to get you to reject “government-run” health care.

Business groups that serve on the steering committee for the National Coalition on Benefits last week sent a letter to House Ways and Means Committee Chair Charles Rangel (D-N.Y.) expressing “grave reservations” about setting up a public insurance option. The letter says, “A ‘public plan’ option administered by the federal government is inherently destabilizing to the employer-based health insurance benefit,” as it “cannot operate on a level playing field and compete fairly if it acts as both a payer and a regulator.” Signer of the letter included the Business Roundtable, the American Benefits Council, the National Association of Manufacturers (NAM), the U.S. Chamber of Commerce, the National Business Group on Health, the National Retail Federation, and the ERISA Industry Committee.

So what’s the case for the public option, and can it be set up on a “level playing field” to satisfy the insurance companies?

The potential advantages of offering a public option include:

• It offers an alternative for those who do not want trust or otherwise want to have their coverage through an insurance company with a for-profit motive
• It would be a consistent, portable plan nationwide, whereas some insurance plans may only be available in certain regions.
• It should be less costly at the outset, since it will have minimal expenses for marketing and no profit margin. Insurance plans spend, for example, about 13-14% of the premiums they collect on Medicare Advantage plans on marketing and profit (about 6-7% for each), according to the GAO. A public option will also have lower administrative expenses (these expenses are about 2-5%, depending on the source), compared to 5-20% for insurance companies. A recent Lewin Group study claimed that even if public and private insurance plans paid the same average rates to health care providers, the public plan would cost 9% less.
• The public option will have substantial clout to negotiate with providers on fees and innovative payment arrangements to encourage efficient and high quality care.
• Public plans, like Medicare, have had more success over the years in controlling cost trends, compared to insurance carriers. That is, their costs per covered member have increased less rapidly over the last several decades.
• A public option, like Medicare, will enable a nonprofit entity to innovate with coverage of experimental treatments, payment approaches, disease management, and prevention initiatives, which for-profit entities may be reluctant to take a chance on. Studies have shown that despite a broad use of fee-for-service payments in most instances, Medicare has actually conducted many experiments in several areas, such as with other payment approaches (e.g., using flat payment amounts for certain “diagnostic-related groups,” or health condition treatments) that other private plans subsequently are adopting.
• It will enable collection of massive amounts of standardized data on utilization, outcomes, provider practices, etc. that separate for-profit organizations alone might not be willing to share for competitive reasons.

So, granted, the public option would have certain cost advantages right out of the gate, namely less overhead cost and no profits. Insurance carriers would have to prove their value by providing more efficient care, better benefits, etc. for the same or acceptably higher premiums. But the Professor Hacker and others have proposed ways to keep other aspects of the “playing field” level, in order to address any legitimate concerns of insurance companies. These concerns include public option potentially forcing providers to accept unfairly low fees (especially if combining their clout with Medicare) or using other government funds to help subsidize any shortfalls. But to counter these concerns, supporter argue that the public option would be run independently of Medicare and Medicaid, and either separately negotiate its own rates or else negotiate rates on behalf of all payers, so that even the insurance companies pay hospital and doctors the same rates that the public plan would pay.

Hacker explains elaborates on these in the introduction to his recent paper:

To create a level playing field requires attention to the “three R’s” of workable public-private competition: rules that are the same for both the public plan and private plans, risk adjustment that protects plans from being competitively disadvantaged if they enroll a less healthy group of people, and regional pricing that allows private plans and the public plan to compete within regions on the same terms, rather than having the public plan compete on a national basis with regionally based private plans (whose premiums may be lower or higher in any given region).

Finally, giving the public plan the authority to bargain for reasonable rates is an essential item on the menu of cost control—and one that the Congressional Budget Office (CBO) and other budget watchdogs are likely to “score” as producing savings (in contrast with many other currently favored cost-control strategies). Nonetheless, there are reasonable concerns about how the new public plan will use its bargaining power—concerns reflected in current proposals for a price-taking (rather than price-making) public plan that would have limited ability to secure fair rates. However, a watered-down public plan would be a grave mistake. Instead, the public plan should include safeguards designed to ensure that providers are fairly represented and that bargaining for lower prices does not negatively affect patients’ access to care or shift costs onto private insurers. Indeed, a better alternative to a public plan without price-setting authority would be allowing private fee-for-service style plans to piggyback on the public plan in setting their own prices.

These should be very helpful suggestions, but it’s not clear if the insurance industry (America’s Health Insurance Plans, or AHIP) or others against the public option have any reaction to these or if they just don’t trust Congress or HHS to follow through with steps like these. In a sense, it all comes down to trust—many individual Americans don’t trust health insurance companies, and many of the latter don’t trust the government which supposedly reflects the will of Americans.

To read the summary or full paper by Jacob Hacker, click here. (http://www.ourfuture.org/files/Hacker_Healthy_Competition_FINAL.pdf).